401(k) Millionaires

Your workplace retirement account can play a critical role in your overall retirement strategy. However, some have gone further with the accounts than others, especially recently.

CNBC reported on findings that place 401(k) accounts at all-time highs, with some even joining the much-desired “two comma club” of 401(k) millionaires. Average 401(k) balances jumped 24% from the previous year to $129,300. Also on the rise were overall contributions, with 12% increasing their contributions since last year and 37% of employers placing new employees into workplace plans. The study discovered a record 412,000 401(k) plans with million-dollar balances; overall Individual Retirement Account (IRA) millionaires reached 342,000, another record.¹

Some of this represents a correction from 2020 as well as the economic uncertainty faced during the early days of the global pandemic. People are rethinking their retirement needs and taking advantage of employer matches, if available. It also reflects businesses working to entice employees; even some restaurants are offering 401(k) plans to their workers these days, in a bid to maintain staffing levels year-round.¹

What does this mean for your overall retirement strategy? I’d be happy to talk to you about this and the many other choices open to you at your earliest convenience.

The Fed Can’t Keep a Secret

If you have a secret, don’t tell anyone at the Federal Reserve Bank. They may leak the story before you’d like.

In early August, multiple regional Federal Reserve Bank presidents hit the speaking tour. They made headlines by suggesting that the economy is strong enough to justify tapering the Fed’s monthly bond purchases. As you may remember, the Fed began buying $120 billion in Treasury and mortgage-backed securities in July 2020 to help support the economy.¹

But now it appears the Fed presidents were just telling tales out of school. At its July 27-28 meeting, most Fed members agreed that “Looking ahead… provided that the economy were to evolve broadly as they anticipated … it could be appropriate to start reducing the pace of asset purchases this year.” These minutes are from the meeting on August 18.²

The financial markets appeared to take the news in stride, thanks in no small part to the Fed presidents hinting at the policy change.

In the coming weeks, we’re likely to hear a lot more from the Federal Reserve. On Thursday, August 26, central bankers will meet virtually for their annual Jackson Hole Economic Policy Symposium, where Fed officials expect to guide when they could begin to pare back bond purchases.³

If all the Fed talk is interrupting your sleep, please give us a call. We’d welcome the chance to hear your perspective.

Mixed Signals on Inflation

Are you having a tough time keeping track of inflation’s mixed signals? You’re not alone.

Consumer prices in July climbed at their fastest rate since August 2008. Worse, producer prices, which can be an indicator of future price changes at the consumer level, rose at the highest rate since tracking began.¹

However, in recent weeks, the stock market has shrugged off the inflation news, believing that the worst is over and rising prices will moderate in the
future.

It’s important to remember that the stock market is a discounting mechanism, which means it’s always looking forward. Put another way, the stock market’s price today represents all available information about current and future events. How far forward is the stock market looking? Most would agree it’s “discounting” activity six to nine months into the future.²

Does that mean inflation will be lower in six to nine months? That’s what the stock market is suggesting. But the stock market also has a less-than-perfect record as a discounting mechanism, largely because the future is somewhat unknowable.²

Inflation is just one factor to consider when making adjustments to a portfolio. But if you’re unsure, thanks to the mixed messaging I’ve seen lately, please reach out. We’d welcome the chance to hear your perspective.

A Wall of Worry

Have you ever heard the Wall Street expression, “markets climb a wall of worry?”

It’s the idea that financial markets are constantly on edge. Traders fret about how long a market rally can continue before it runs into trouble.

Worry shifts from one news event to the next as traders attempt to build a case whether it’s time to go “risk-off” with a portfolio strategy.¹

If you’re looking for something to worry about, you’ve got plenty of choices these days: the Delta variant, inflation, jobs, vaccines, Fed policy, taxes, unemployment, and so on. There’s no shortage of headlines to help boost investors up the wall.

But by early August, the Standard & Poor’s 500 index notched its 42nd record closing of 2021. And while past performance is no guarantee of future results, it’s important to keep in mind the S&P 500 has moved higher despite the wide range of economic and financial concerns.²

Our role as financial professionals is to help guide and equip clients with the tools they need regardless of what news “worries” the financial markets. We work with professionals who monitor the economy and interpret how the recent news may influence the overall trends.

If you find yourself worried about the financial markets, please reach out. We’d welcome the chance to hear your thoughts.

Chinese Stocks Under Pressure

With overseas investments, we remind people that, “international markets carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risk, foreign taxes and regulations.”

The “political risks” and “regulations” portions of this common disclosure have been on full display in recent weeks in China.

Chinese technology and education stocks have been under pressure as Chinese regulators continue their push to rein in large companies for reasons that include data security, corporate behavior, financial stability, and curtailing private-sector power.¹

The Nasdaq Golden Dragon China Index (HXC), which tracks 98 of the biggest U.S.-listed Chinese stocks, dropped 19% in the three days ended Tuesday, July 27.² Prices have since rebounded somewhat but overall investor sentiment remains cautious.

Actions by China’s regulators are raising new concerns among investors about whether other Chinese industries in the weeks and months ahead may fall in the crosshairs of regulators.

If you have some investments in foreign markets, we know you’ll be watching these developments closely. Please reach out if you have questions or thoughts to discuss.

A Roaring Start to Earnings Season!

Corporate earnings season has begun, and the results are turning heads on Wall Street.

Of the 120 companies in the S&P 500 index that reported numbers as of Friday, July 23, 89% of them beat the Street’s earnings-per-share estimates by an average of nearly 21%.¹

The robust results are leading Wall Street analysts to raise estimates for the third and fourth quarters as well as the first-quarter 2022.¹

Earnings season occurs four times a year, and it’s the time when a majority of publicly traded companies release their quarterly financial reports. Companies often go into great detail about their business, and some provide guidance about what lies ahead.

Typically, earnings season starts several weeks after the calendar quarter comes to a close. For example, the second quarter’s earnings season began in mid-July, and the majority of companies are expected to release their earnings over the next six weeks.²

If you hear any confusing commentary, please give us a call. We always welcome the chance to talk about what earnings may be saying about the overall economic outlook.

A 6.1% Bump in Social Security?

The news keeps getting better for Social Security recipients. It’s now projected that benefits will increase 6.1% in 2022, up from the 4.7% forecast just two months ago. That would be the most significant increase since 1983.^1,2

It’s all about inflation. Social Security cost of living adjustments (COLA) are based on the consumer price index, which rose 5.4% in June — its largest 12-month increase since 2008. The official announcement is expected in October and, once it’s confirmed, the revised payment will go into effect in January 2022.³

More than 65 million Americans receive Social Security, and the annual cost of living adjustments are designed to help recipients manage higher costs. At the start of 2021, recipients saw a 1.3% increase.⁴

The average monthly benefit is $1,544 for retired workers. So a 6.1% increase amounts to $94 more a month. That might not be quite enough for a car payment, but it’s double the 3% raise being given to U.S. workers in 2021.^4,5

Social Security can be confusing. One survey found only 6% of Americans know all the factors that determine the maximum benefits someone can receive. If you have any questions, please reach out. We have a number of resources at our fingertips that you may find helpful.⁶

Conducting Your Mid-Year Financial Checkup

With June officially behind us, it’s time to face the facts: we’re headed toward the second half of 2021. While there’s still plenty of time to enjoy the rest of summer, we encourage you to slow down and check up on your financial well-being.

Review your budget: Your spending habits likely look different now than they did in 2020, but did you adjust your yearly budget accordingly? The second half of the year can be expensive, between the holiday season and back-to-school spending. Take some time now to prepare.

Check your credit score: If you plan on moving, purchasing a car, or taking out a personal loan this year, you’ll want your credit score in good shape. Your score could have been impacted by recently accrued debt, late payments, hard credit inquiries, identity theft, and more.

Prepare for advanced tax credits: If your family is eligible, you may begin receiving advanced child tax credits in July. Families who qualify are expected to receive six installments via direct deposit or mailed check. If you anticipate getting the credit, you may want to talk it over with your tax professional.

With 2021 looking different than last year, take some time to evaluate your financial standings as we prepare for the second half of the year. Remember, we’re always here if you need assistance reassessing or working towards your financial goals.

Economic Lessons from Used-Car Inflation

Inflation is defined as the general upward price movement of goods and services in an economy. The key word is “general.”

Inflation tends to be uneven and affects the price of some items more than others.
If you’ve been in the market for a used car, you’ve learned a critical economic lesson about the “uneven” side of inflation. The overall rate of inflation has been 5% for the past 12 months. Meanwhile, the average price of a used car is up 30% from a year ago.^1,2

Various factors drive used car prices, but most of the trouble links to the global microchip shortage.³

Demand for used cars may well slow later this year as automakers return to normal production levels. As the market shifts, some people who bought used cars may learn another key economics lesson: they might owe more for their car than what it’s worth as prices return to historical levels.⁴

The most important takeaway is that inflation touches our lives in different ways. Gasoline prices are up sharply from a year ago, but you might not feel the increase if you work from home or are retired. However, at the grocery store, all shoppers are paying higher prices for everything from beef to pork to milk.⁵

If all the recent inflation talk has you uneasy, please contact our offices. We’d welcome the chance to hear about your experience with higher prices.

Summer Travel is Back!

One of the most anticipated comebacks of 2021 isn’t an athlete, rock star, or movie franchise. It’s summer travel, and it appears to be back with a vengeance.

Travel agents are working 14-hour days to meet the needs of eager travelers. People aren’t just taking road trips, either; airports are reporting being at 80% of pre-COVID capacity, while the TSA screenings reached two million for the first time since the pandemic. While these reports may be slightly less than pre-COVID, they also reflect an industry working to meet demand in the midst of new safety requirements, many of which place limits on the number of passengers and indoor occupancy at airport gates.^1,2

If you’re planning to take a trip this summer, bear in mind that prices for gas and tickets don’t merely reflect recent inflation, but an increased demand. AAA reports that hotel bookings in Las Vegas, Anaheim, and San Diego are seeing a pronounced uptick. Bear that in mind if you’re not
necessarily looking for population density this year.³

These summer travel stats show an industry in recovery and a nation eager to get out of the house. Whatever your plans might be, I hope you enjoy the season and look forward to touching base with you and hearing all about your travels.